How to Spend FSA Money

Do you have FSA funds left in your Flexible Spending Arrangement? If you overestimated your medical expenses for 2016, you might lose that money under the use-it-or-lose-it rule. That means you have to spend all your FSA money by Dec. 31 unless your plan allows you to carry over a small amount into the next year.

The maximum you could have put toward a flexible spending arrangement is $2,550 for 2016, the same amount as 2015. The FSA maximum amount for 2017 is expected to rise $50 to $2,600.

It used to be really easy to do until a couple of years ago. In January 2011, a sweeping change made to FSAs went into effect which made it a lot more difficult to spend FSA dollars in a pinch. As a result, many FSA users have become a lot more careful about the amount they put into their account.

If you are one of those unlucky few (or should I say lucky, because you didn’t spend as much in medical expenses as you anticipated) who still have FSA dollars left in your account, keep reading.

What to know about your FSA

Check your employer’s policy: The first thing to do is remind yourself what your employer’s policy states regarding the FSA they offer. Some employers allow you to carry up to $500 into the next year or offer a grace period of up to 2½ months after the end of the plan year. They can either offer a carryover or a grace period, but not both. So check the policy to see what you have to work with and go from there. (A grace period of 2½ months, for example, would mean you have until March 15, 2017, to finish spending your 2015 FSA contribution.)

Understand what can be purchased using FSA dollars: The next step to spending FSA dollars wisely is to check the IRS rules on what is or isn’t a qualified medical expense under the FSA guidelines. As a general rule of thumb, every expense should have a medical need and every medicine should have a prescription. (It cannot be for cosmetic purposes unless it’s needed to treat a disease, for example.)

How to spend your FSA dollars

Work with your doctor: It used to be that most of the over-the-counter (OTC) medications could be purchased using FSA dollars, but that’s not the case anymore. You need a prescription for everything you buy. Some OTC medications, even with a prescription, have to be paid out of pocket and then reimbursed from the plan by submitting a claim. Doctors are very understanding about these situations and are willing to work with you. At least that has been my experience. I have asthma and my doctor was happy to give me a prescription to stock up on allergy medications for the fall. If you have a medical need that is seasonal, talk to your doctor and get a prescription to stock up. Also, your doctor might provide prescriptions for other items you normally need but just buy OTC, like vitamins or blood thinners.

Get your physical, vision, and dental checkup: If you are due for a physical, vision, and dental checkup, that would be an excellent way to put your FSA dollars to good use. You could splurge and get eyeglasses with all the bells and whistles like UV coating, anti-glare, etc.

Update your emergency/first aid supplies: When is the last time you checked your first aid cabinet? Go through it and find if everything is up to date and not expired. If any of them have expired, update them. If you have only one set at home and you are in a multi-level house, it might be useful to have a first aid kit on each level. And don’t forget your cars.

Plan for next summer: Do you plan to spend a good chunk of time on the beach next summer? Stock up on sunscreen with high SPF (30 or higher).

Think about future needs: If you are pregnant, hoping to breastfeed, there are plenty of nursing related supplies (breast pump, nursing pads, nursing cream, etc.) you can stock up on. And if your baby is on a special diet formula, talk to your doctor and get a prescription for that particular formula. It will be eligible as a medical expense (regular formula doesn’t come under this). If you plan on getting pregnant, pregnancy test kits or fertility monitors might come in handy. Or, if you don’t want to get pregnant now, maybe you want to stock up on birth control supplies.

Play doctor: Sometimes it is very useful to have basic medical equipment at home like a stethoscope or blood pressure monitor. My daughter’s pediatrician taught me how to listen to my daughter’s lungs and look in her ear for signs of ear infection. Of course, this is not to replace a doctor, but it is very helpful to give some basic information to the nurse when I book an appointment for my daughter with her doctor.

Treat yourself: When used for preventive care, hot/cold packs are eligible for FSA spending. You can relax a little and ease any pains you have after a hard day’s work with a hot/cold pack and buy them with tax-free dollars.

Don’t forget miscellaneous expenses: You might remember to submit a reimbursement request for medications but something like the shipping and handling fees might fall through the cracks. If you paid for shipping to get your contact lens solution delivered to your home, that is an eligible expense. Make sure to include that in the reimbursement. And don’t forget to claim commuter costs. The cost for driving to and from the doctor’s office along with any parking fees are all eligible expenses.

Educate yourself: If you have a medical need (diabetes or weight-management problem), the classes you attend to learn how to manage those medical needs come under eligible expenses. You will have to submit a letter of medical necessity; your doctor should be able to help you with that. In the same vein, if it is medically necessary, you can even pay for some exercise equipment using FSA money.

“You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.”

Plan for next year

Your FSA money is tax-free money; however, it is still money that could be put toward a different goal if it ends up that you don’t actually need it for medical expenses. So it is important that you estimate as accurately as possible — and plan conservatively — when determining how much to sock away in a flexible spending account. End of the year is an excellent time to review all the medical expenses for the past year and think about what your expectations are for the upcoming year. Again, the limit on what you can put into an FSA is $2,600 for 2017, up $50 from 2016.

Do you have any left-over amount in your FSA? How are you planning to spend it?

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Spending FSA account Money is a crucial decision to take. Though there are lots of options to make those money spend in minutes but there are the ways to use the amount carefully. Before you start to spend them ruthlessly, check your miscellaneous expenses. It is often ignored but is the part and parcel part of your endless expenses. Thanks for sharing.

All of your spending is dictated by how much of a pain the company who manages your FSA is being. Yes, you are supposed to be able to use your FSA dollars on OTC medicines if you have a prescription, but I have provided all documentation and still been denied the use of my FSA dollars in such instances. The managing company would only approve FSA charges at a pharmacy for a prescription or at a doctor’s office.

This is why I prefer HSAs (Health Spending Accounts) over FSAs. I NEVER had anyone looking over my shoulder with the HSA and telling me what I could or could not spend the money on. I just had to affirm that all HSA spending was only on qualified medical expenses on my tax return. The drawback, of course, is that you have to be in a High Deductible Health Plan to have the HSA (which has its own negative points).

Usually I really like your articles, but this one gives some advice with possible significant tax and legal consequences. Since the passage of ACA (Obamacare), over the counter (OTC) items like first aid supplies, sunscreen, and Tylenol are not permissible from FSAs. The law reduced maximum contributions to $2500 and eliminated tons of permissible items. The only way for these items to be covered is to get a prescription from a doctor. For example, your dermatologist would have to write one for the high SPF sunscreen as a medical necessity.

Mike, you’re right about OTC drugs like Tylenol, but wrong about first aid supplies and sunscreen.

From the IRS Publication 502:
“You can include in medical expenses the cost of medical supplies such as bandages.”

From Aetna’s website:
The cost of an OTC sunscreen product with SPF 30 or higher is an eligible medical expense. The cost of sunscreen with SPF lower than 30 or for lotions and cosmetics that contains sunscreen is not an eligible medical expense.

I have purchased both sunscreen and first aid supplies recently without experiencing any tax or legal consequences. I have a debit card associated with my FSA account which automatically declines any items which cannot be purchased with FSA money.

Mike, I think it has to do with the insurers/administrators. I don’t know if I can include a link, but it is eligible as a preventive medication under Aetna.

Sunscreen, with high SPF X The cost of sunscreen with high SPF (30 or higher) is a qualified preventive care expense.

I was able to order it last year via the FSA store without any problems.

As i mentioned in the post the ACA does put a lot more restrictions, that is why you have to work with your doctor. My doctor was able to prescribe a lot of medications I usually get (Motrin for my toddler is something I use very frequently during the cold season).

on a related subject, don’t sleep on FSA’s lesser-known sibling, the DCA. it is a flex account like FSA but used for paying child care expenses. my employer’s limit is 5K, and since we just put our baby in day care, i will be maxing out that amount, which should save my wife and i about $1500 in taxes.

Usually our family uses up the FSA within the +/- of a pair of glasses at the end of the year. This year, I realized in October that we were going to have more than half of the money left over. So, while that means we had an amazingly healthy year (grateful for that), I had no idea what to use it on and didn’t need 4 new super pairs of glasses! The kids said condoms, but even that would have been enough for a small brigade (or college dorm maybe!).
A friend had mentioned that getting her CPAP machine was taking a long time to get replacement approval and I looked into what to me would have been a truly luxury item — a travel CPAP. I travel a lot (monthly) and my machine took up half of my carry-on luggage. So I looked into it and got an amazing little machine. Just an option if you’re like me, unwilling to leave that money on the table.

Very good article. I know I learned a few things. I have a question about max contributions. My limit at work is either 5k or 5500. If my spouse has the same eligibility and limit through her employer can she also max it out and we have a combined 10k to spend on childcare throughout the year?

What if we incurred a medical expense in 2015, but did not receive the bill until 2016 and we paid the bill in 2016. Would we be able to get reimbursed out of the 2016 FSA? (Our 2015 FSA has been used up and now we are stuck with bills from a 4 day hospital stay from the end of the year)

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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